The Australian Housing Outlook Report 2021-2024 – which has been produced by BIS Oxford Economics for QBE Lenders’ Mortgage Insurance – has said that since the onset of the coronavirus pandemic, more Australians have stayed in-country while many overseas Australians have chosen to come home, which has had a significant impact on the domestic property market.
Returning citizens and new permanent residents moving to Australia have been additional sources of property demand, while the drop in outflows has meant that some properties that would have been sold as owners moved overseas have not entered the market.
The report said that overall, this shift in migration patterns has added to the upward pressure on house prices.
It also noted that the “abrupt” halt to migration has been one of the most significant impacts of the COVID-19 crisis, with net inflows having fallen from around 250,000 a year to 72,000 in the first half of 2020-21.
While economists were initially concerned about the impact of the large fall on the property market, the downside has not materialised and house prices have surged in response to low interest rates, government stimulus, and the changes in international and domestic migration patterns, the report said.
Domestic migration patterns have changed considerably over the last 18 months, with inflow from regional areas into cities returning to their pre-pandemic levels, driven by a range of life events such as education, entry into the labour market, and forming of relationships.
However, the report also noted that flows out of the cities have surged to well above pre-pandemic levels, driven by residents seeking a sea/tree change.
While outflows from cities have historically been dominated by older households, younger families with children have also joined in this trend due to the ability to work remotely, housing affordability constraints in city centres, preferences for more space, and government stimulus measures.
Indeed, many new arrivals into the regions have been first home buyers eligible for the HomeBuilder grant, other state subsidies, and stamp duty exemptions, the report noted.
“It is expected these shifts will diminish over time and broadly return to the long-term trends, though the near-term landscape is evolving, given the unique and complex nature of COVID-19,” it said.
Sydney median house prices to top $1.5m in 2022
The report also provided forecasts on median house price trends in the capital cities over the next three years, stating that Sydney’s median house price could exceed $1.5 million next year, while Canberra could hit the $1 million mark for the first time in 2022.
Median house prices in Sydney could rise by 8.3 per cent to over $1.54 million in 2022 (they increased by 26.0 per cent to $1.4 million in 2021).
However, looking ahead, price momentum is expected to cool in Sydney, with house prices expected to rise by 0.3 per cent in both 2023 and 2024 as affordability constraints begin to bite.
Explaining the reason for the predicted slowdown in house prices, the report stated: “Sydney’s housing market has so far defied expectations by outperforming most markets, despite being a relative laggard through the economic recovery and overexposed to the current loss in overseas migration.
“With housing affordability now worsening and first home buyers showing signs of being priced out of the market, the bulk of these gains have likely now been realised.”
However, a limited increase in the supply of both new properties and established dwellings will likely continue to drive house prices higher in the year ahead. Detached house completions for Sydney have fallen by 6.0 per cent year-on-year to 14,200 in 2020-21, and have been projected to rise to 15,400 in 2021-22.
Meanwhile, the median house price in Canberra is expected to hit the $1 million mark for the first time in 2022, with prices predicted to rise by 18.8 per cent to $1.07 million in 2022.
According to the report, prices could rise by a further 5.3 per cent to $1.13 million in 2023 and 2.8 per cent to $1.15 million in 2024.
The Australian capital city experienced a 25.4 per cent growth in house prices in 2021 to $899.8 million.
The report said that along with low interest rates and the HomeBuilder grants, Canberra has also benefited from being one of the most affordable capital cities in the country with above-average incomes combining with below-average property prices.
“Although the strength in house price growth from 2020-21 is not expected to be sustained, as the positive impulse from the policy settings fades, existing strong momentum is likely to continue through to at least December 2021 before growth tapers,” the report said.
Victoria makes up more than a quarter of new HomeBuilder applications
In Melbourne, the median house price is forecast to rise by 10.9 per cent to over $1.11 million in 2022.
While momentum is also expected to slow in Melbourne, the report has predicted a 4.2 per cent rise in 2023 to $1.16 million and a 2.8 per cent rise in 2024 to $1.19 million.
The report explained that while the recent pace of house price growth cannot be sustained in Melbourne, strong growth is expected in 2021-22 barring lengthy and widespread lockdowns.
It said: “A number of factors are at play: the pull forward demand from HomeBuilder will have dissipated, many markets will have moved into fundamental oversupply, and rising mortgage rates (in time) together with recent and near-term price rises will crimp affordability.
“But the relatively modest pace of price rises over the last 12 years means affordability is still favourable.”
Melbourne has the largest greenfield land market in Australia and regional areas are “thriving”, which have led to Victoria accounting for 29.0 per cent of HomeBuilder new applications.
“Taking this activity into account, house completions will reach a new record high in the near-term,” the report said.
Perth is expected to post strong median house price gains of 8.7 per cent in 2022 to $655,800, as unemployment declines further and the economy strengthens.
Prices are forecast to rise by a further 5.4 per cent to $691,200 in 2023 and 3.6 per cent in 2024 to $716,300.
Contributing to the gains are favourable housing affordability, a positive outlook for the resources sector (although simmering trade tensions pose some downside risk), and the resumption of migration inflows, according to the report.
“Moving through the medium term, rising prices and interest rates will worsen affordability and dampen momentum, and this shift will be reinforced by a sharp rise in new supply, which will absorb a significant amount of the current demand,” it stated.
[Related: Australia needs housing reforms: IMF]